ANZ to lock up $35bn to fund 2024 lending boom

One of Australia’s biggest banks has revealed the size of its cash need as borrowers continue to pile into housing and new businesses.

ANZ has warned it needs up to $35bn to cover its funding costs this year as the banking major faces a demand for cash amid a hot mortgage market and the roll-off of billions in ultra-cheap pandemic funding.

In a market update on Monday, ANZ said it was eyeing up raising further funds after securing $39.9bn in wholesale debt funding last year.

ANZ said it had already secured $3bn from the funds raised in 2023, as well as issuing $16bn in term funding this year.

The bank said it needed $30-35bn to cover its funding costs this year, as ANZ faced the roll off of $8bn in ultra-cheap pandemic funding issued by the Reserve Bank.

ANZ, led by Shayne Elliott, said it needed the cash amid “robust” lending growth across its retail and commercial franchises in the first quarter of the bank’s financial year. This was despite tighter funding environments as the bank grapples with higher interest rates.

ANZ CEO Shayne Elliott.Picture: Arsineh Houspian

ANZ said its investments in home lending processing capability and capacity were bearing fruit.

The bank said brokers were giving positive feedback about their experience dealing with the bank’s loan operations.

“We are continuing to grow our Australian Home Loan book profitably by continuing to offer reliable turnaround times, and in line with that we are competitive but not market leading on pricing,” ANZ told shareholders

ANZ said the lending growth had largely been self funded by the bank’s deposits spread across both divisions, with $8bn flowing in from retail and commercial balances and a further $NZ2bn from the New Zealand business.

But institutional deposit levels fell by $3bn, with ANZ noting foreign exchange movements had sliced almost $1.5bn from the bank’s balance sheet, while the remainder reflected the maturing of a number of fixed term deposits.

ANZ said it was also enjoying a $7bn benefit from net loan advances, which are “all contributing to balance sheet growth”.

Its total capital levels were sitting at 13.06 per cent as of December 31, or 11.86 per cent excluding the excess cash being held by the bank for the potential $4.9bn purchase of Suncorp Bank, set to be decided on February 20.

The capital result was marginally down from the 13.34 per cent total capital levels reported in September after ANZ handed out its full year dividend to shareholders.

ANZ said it was sitting on a $4.03bn war chest to cover potential loan losses, with provisions further ratcheted up by $56m in the period as the bank prepared for loans to go bad.

The bank booked $27m on individual provisions, amid expectations of bad loans on particular borrowers, as well as a further $26m for collection provisions.

But ANZ noted its gross impaired assets only increased by 1 basis point in the period to 22 basis points.

Total mortgages 90 days past due also held steady at 70 basis points, “well below pre Covid levels”, as borrowers held steady on repayments.

Citi analyst Brendan Sproules said ANZ’s update was “devoid of market-moving news”, noting the performance was “consequently slightly better than we expected”.

Mr Sproules said the $53m in provisions was below the circa $100m forecast.

But UBS analyst John Storey said the update left questions around ANZ’s investment in growing its lending volumes at the expense of net interest margins.

“We would also want to see more details around what’s happening on the cost line,” he said.

ANZ shares closed up 1.3 per cent to $28.04.

Originally published as ANZ to lock up $35bn to fund 2024 lending boom